“The only logically coherent and scientifically valid function of money/currency is to record the measure of value and its divisions so that the value of portions of indivisible wealth may be negotiated. As a record of value, the unit used to measure value must obey the mathematics of measure and the science of passive stability i.e. Passive BIBO Currency (Note: that stability is a requirement for measure). This value recording function colloquially understood as “providing liquidity” can be universally performed and accessed without any arbitrary limits or conditions using a standard technical specification and without any requirement for the unit to “circulate”. The notion that money is an “object” that must “circulate” in order for value to be generated is a logical and scientific absurdity and represents the basis of the rationales being exploited to justify the actions being taken by authorities to deal with the current crisis. However, if the “circulation” model of money is not accurate then such actions cease to have legitimacy as they are based on a false model of reality.”

Marc Gauvin:

The IOU Use Case

“Let us examine the case where A issues an IOU to B for 10 units in exchange for a discreet amount of goods/services, the IOU is a record of the measure of the value that A and B decided was a fair “price” for the transaction of those particular goods/services. Now, does C need that IOU in order to issue a similar IOU to A or to B? Not at all, in fact it is an arbitrary limitation to say that the information of “A owing B” needs to “circulate” in order for C to be able to owe B or A.

Why?

Because A owing B and C owing B or A are logically independent of whether or not the physical support that records a given IOU circulates or is stationary. That is while the function of recording value requires a common physical support between parties, whether or not the support circulates is immaterial to whether the IOU exists or not. This is true regarding IOU’s between specific parties, but what about legal tender that acts as an anonymous IOU?

Anonymous IOU (legal tender)

Before anyone can access legal tender, they must first subtract the exact amount from an account balance i.e. withdraw from their account, so just like A’s IOU is a record of a negative entry in A’s account so too legal tender is a record of someone’s negative entry. The only thing that gives universal value to legal tender, is the fact that it is universally guaranteed to be accepted as a deposit on account, without such a guaranty legal tender would cease to have value.

In the interim, between withdrawal and deposits from accounts and as legal tender changes hands, it serves as a register of the value of goods and services transacted as your cash “balance”, rises and falls proportionately and exactly as your account balance would do. Similarly, all changes in account balances also require transactions of goods and services, so there is no functional difference between the accounts and the cash and both are fully interchangeable. However, as access to cash necessarily depends on the prior existence of accounts and is destined to eventually be deposited in accounts, it is therefore clear that cash depends on the prior existence of accounts and only represents a mere “portable mirror” of these. Therefore, cash is neither a primary nor essential manifestation of records of value while accounts are. We can thus confidently conclude that although IOUs and cash use physical supports to be objectively recorded and communicated, they (IOUs and cash) are not physical things but rather abstract constructs the only logical purpose being to register the value of goods and services in transactions. Finally, it is indisputable that the prior existence of goods and services is a requirement for records of value to have any logical validity, rendering the notion of money being a necessary precursor for the creation of wealth logically invalid.

A Logical Model of Money Debunks the Requirement for Monetary Circulation

Let us dissect the following statement:

Currency is a measure of value, it is relatively scarce, can be bought and sold like a commodity and must circulate in order for society to create value and prosperity.
Many would readily accept this statement as being true. But is it? To answer this question we need to unearth the underlying logical functions and understand these in an independent generic fashion, to achieve this we use a simile that illustrate how identical functions behave in familiar but quite separate scenarios. For our purposes, a useful simile is that of recording movement of traffic in and out of a highway versus that of recording movement of value in and out of an economy.

We start by establishing the following logical equivalencies:

Highway – Economy

Vehicles – Value?

Tollbooths – Accounts?

Vehicle counts – Value Count

Now, we know for sure that Vehicles circulate on the Highway and as they enter and leave the Highway they do so through tollbooths where a Count of Vehicles being added to and subtracted from the Highway is recorded. Similarly, we know that Value circulates in an Economy and is added to and subtracted from Accounts using units of money as we bring Value (goods and services) into the economy and remove it from the Economy when we consume it. ??

Now recalling our standard economic statement above in the context of our simile, it is clear in both scenarios that counting necessarily requires “measure” affirming “Currency is a measure of value..” so we can establish the truth of this first proposition in the statement. However, this in turn begs the question that given that in the case of Tollbooths a “shortage” of number to record traffic is absurd, how then could there ever be a “shortage” of number to count Value entering and leaving an economy? Counts can be recorded on any number of alternative supports and therefore have no necessary physical properties. It is also evident, that any number corresponding to any quantity of Vehicles or Value, must always be available, right? So the proposition “..(currency) is relatively scarce..” makes no sense whatsoever and therefore cannot be held to be true. Moreover, not being scarce and not having any necessary intrinsic physical properties the proposition that currency (Value Count) “ ..can be bought and sold like a commodity” is also false because although it may be the case that it can be bought and sold, it makes no sense to value a measure in terms of itself other than on a one to one basis and in any case money is not “ .. like a commodity”.

In our simile we see that the only things that “circulate” are the Vehicles and the Value but NOT the corresponding Vehicle and Value Counts. It is indisputable then, that just as the ability to keep count of the circulation of vehicles entering and leaving the Highway at each tollbooth is independent of whether or not the numbers of the particular counts are stationary or circulate, so too it must be the case that the generation of currency in Accounts as the owners of those accounts move wealth into and out of the Economy must also be independent of whether or not such records move around. Therefore the notion that “..it is essential that it (Currency) circulate..” also cannot be true. In fact, introducing the idea that counts somehow need to circulate, not only confuses the purpose of keeping correct tabs on the particular circulation through particular Accounts/Tollbooths but appears to have no other legitimate logical purpose.

Finally and in both cases, the existence of Vehicles and Value is required prior to any accounting taking place, therefore under no circumstance does it make sense to make the creation of these (Vehicles and Value) contingent on the prior existence of currency or accounts. Thus the proposition “..it is essential that it (Currency) circulate IN ORDER FOR SOCIETY TO CREATE VALUE AND PROSPER..” is patently false. That is to say, that in the real world, it only makes sense that the creation of goods and service precede the creation of any records of the Value of these just as the existence of Vehicles precedes any records of traffic on a highway.

Conclusion

This exercise should be sufficient for us to see that with regards to the conventional beliefs around money, we are operating on false pretences precisely because our current perception of money/currency lacks logical consistency.

The World Financial Crisis is happening entirely because we accept this false paradigm as true. Using Information Technology, Control Systems Engineering and the Mathematics of Measure and Stability a Passive BIBO technical specification for currency/money has been provided to guaranty a logical and stable model to provide liquidity. Under such a specification, everyone has unfettered access to stable liquidity for any transaction at any time such that currency ceases as a scarce commodity itself and instead, acts as mere stable unit of measure distributed across the population in proportion to the ability each have to produce goods and services for others.

Note: “Passive” and “BIBO” are technical terms from stability theory in mathematics and Control Systems Engineering, so the Passive BIBO specification for the provision of Liquidity is not a policy it is a technical specification that satisfies concrete technical requirements, the only policy issue is whether the specification is taken up or not. It is worth mentioning that interest free mutual credit systems conform to Passive BIBO and should benefit from the Passive BIBO Liquidity specification as a technical rationalisation of the soundness of their own practices as well as for serving as a common reference for interoperability between otherwise disparate systems.”

Clearly you have a desire to see aspects of our current economic system rectified, where I would challenge to alleviate the symptoms of social stratification, economic disparity, resource waste, environmental degradation, poverty and war will require nothing less than the total and complete abandonment of this antiquated and totally outmoded system.
There is another option, a resource based economy that focuses on equitable distribution without the need of any type of currency or debt of servitude.

“There is another option, a resource based economy that focuses on equitable distribution without the need of any type of currency or debt of servitude.”

The Passive BIBO proposal has equitable distribution, no servitude and expresses recognition of contribution and consumption. The currency provides accurate information about transactions.

Your vision is quite different you say: “Money is nothing more than a term which represents an abstract form of exchange of labour for purchasing power.”

In Passive BIBO money is defined as a stable unit of measure nothing more, it does not determine “purchasing power” it simply records the exchange of value between users and determined by users.

As a system of measure, it cannot determine in any way social governance which is out of it functional scope. A fundamental fallacy in most discussions about money and social justice is to assume that money is a control system which according to control theory and the mathematics of measure is impossible.

Having an accurate record of value in transactions that all have equal access to, is a requirement for transparent, just and fully participatory social governance. Just like all having free access to units of measure in a building project is fundamental to its success.

There is no need to attribute value judgements to balances but by the same token all need to accurately measure our inputs and outputs.

Your email address will not be published. Required fields are marked *

Comment

Name *

Email *

Website

WRITTEN BY

Michel Bauwens

Michel Bauwens is the founder and president of the P2P Foundation and works in collaboration with a global group of researchers in the exploration of peer production, governance, and property. Bauwens travels extensively giving workshops and lectures on P2P and the Commons as emergent paradigms and the opportunities they present to move towards a post-capitalist world.
In the first semester of 2014, Bauwens was research director of the floksociety.org which produced the first integrated Commons Transition Plan for the government of Ecuador, in order to create policies for a 'social knowledge economy'.
In January 2015 CommonsTransition.org was launched. Commons Transition builds on the work of the FLOK Society and features newly revised and updated, non-region specific versions of these policy documents. Commons Transition aims toward a society of the Commons that would enable a more egalitarian, just, and environmentally stable world. He is a founding member of the Commons Strategies Group, with Silke Helfrich and David Bollier, who have organised major global conferences on the commons and economics.